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Does Temporary Agency Employment Offer a Way out of Poverty?

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Does Temporary Agency Employment Offer a Way out of Poverty? University of Wisconsin–Madison Institute for Research on Poverty Volume 24 Number 3 Focus Fall-Winter 2006 Does temporary agency employment offer a way After welfare reform: You choose your child out of poverty? 1 over the job 25 Race and poverty: Divergent fortunes of Observation in poverty research 29 America’s children? 8 New perspectives on the social and economic Welfare reform as a failed political strategy: contexts of HIV/AIDS infection 33 Evidence and explanations for the stability of public opinion 17 ISSN: 0195–5705 Does temporary agency employment offer a way out of poverty? Is temporary agency employment a good strategy for In the research summarized here, David Autor and Susan helping the poor and disadvantaged escape from their Houseman took advantage of a unique, multiyear policy poverty? Resolving this question is no small matter. Al- “experiment”—the quotation marks are used to empha- though the temporary help sector accounts for less than 3 size that the experiment was created by circumstance percent of average U.S. daily employment, it employs a rather than by deliberate intention—to provide direct evi- disproportionate share of minority and low-skilled work- dence on the longer-term labor market effects of tempo- ers. And state administrative data show that between 15 and 40 percent of former welfare recipients who obtained employment after the 1996 welfare reforms took jobs in The research summarized here is reported at the temporary help sector.1 length in David H. Autor and Susan N. House- man, “Temporary Agency Employment as a Way Several recent studies present evidence that low-skilled out of Poverty?” which appears as a chapter in workers who take temporary agency jobs are more likely Working and Poor: How Economic and Policy than other low-skilled workers (particularly the unem- Changes Are Affecting Low-Income Workers, ed. ployed) to later transition into stable employment.2 These R. Blank, S. Danziger, and R. Schoeni (New York: findings advance the intriguing possibility that it might be Russell Sage Foundation, December 2006; see beneficial to encourage low-skilled workers to take tempo- box p. 7). rary agency jobs as a ‘stepping stone’ into the labor market. David H. Autor is Associate Professor of Econom- However, it is not entirely clear that the positive correlation ics at the Massachusetts Institute of Technology between obtaining temporary help agency employment and and Susan N. Houseman is Senior Economist at finding stable employment should be used to guide policy. the W. E. Upjohn Institute for Employment Re- In practice, it is difficult to disentangle the respective roles search. A previous Focus article by these authors of worker characteristics and job characteristics in engen- is “The Role of Temporary Employment Agencies 3 dering success in the labor market. Thus, to establish the in Welfare to Work: Part of the Problem or Part of true effect of temporary help agency employment on labor the Solution?” Focus 22, no. 1 (Special Issue, market advancement, something akin to a randomized-con- 2002): 63–70. trolled experiment would be ideal. rary sector employment. In particular, they used quasi- week in program activities or job search until they were experimental data from a Michigan welfare-to-work pro- successful. If they failed to meet their obligations, they gram, “Work First.” were terminated from Work First and faced sanctions including, ultimately, an end to TANF benefits. What might be the consequences of temporary help em- ployment for poor and unskilled people? Some argue that The Work First program structure and set of services temporary help agencies, which face lower employee were largely standardized among contractors. Contrac- screening and hiring costs than do direct-hire employers, tors typically spent one week providing new participants may choose to hire individuals who otherwise would have with basic job search skills and strategies—skills assess- difficulty finding any job at all. Such workers will thereby ment and employability planning, interviewing and pre- more quickly find work; they may begin to develop the sentation, and life-skills training. Except for “tech-prep” skills and labor market contacts that ultimately lead to courses, which quickly reviewed skills that might be more stable and better-paying jobs. But a case can also be tested, they provided little in the way of remedial, voca- made that temporary help agencies provide few opportu- tional, or computer skills training. After the first week, nities or incentives for workers to develop skills and participants were expected to look for jobs full time. networks, instead offering a series of unstable, low- Virtually all contractors provided individual job search skilled, low-paid, dead-end jobs.4 Worse, spells of tem- assistance and referrals to specific employers. They ac- porary employment may divert individuals from more companied participants to job fairs, brought employers productive searches for stable, longer-term employment. on site to recruit participants, and sponsored activities such as job clubs. Participants were required to take any Both these scenarios could be correct. In some situations job offered them that paid the federal minimum wage and companies may use temporary agencies to screen individu- satisfied work hours requirements. als for permanent jobs with good pay, benefits, and career ladders. For social welfare policy, however, what matters is Once participants found suitable jobs, contractors had to the effect of temporary employment on the low-skilled follow up with them and their employers until the partici- workers targeted by government programs. The empirical pant earned enough to terminate the TANF case or was analyses Autor and Houseman report here suggest that short- terminated from the program (usually for noncompli- term benefits from temporary agency employment do not ance).6 The Work First provider’s contract with the city persist, and that over the longer term—a year or more— was for one year, and the contractor’s performance was participants placed in temporary jobs are no better off than if evaluated by the fraction of participants who got jobs and they had received no job placement at all. the percentage who held those jobs for 90 days. To examine the effects of temporary agency employment The “Work First” program in Michigan on the low-skilled workers in the Work First program Autor and Houseman drew on two types of evidence. The To meet the requirements of federal welfare legislation, first is a telephone survey of Work First contractors oper- most states, including Michigan, implemented a “work ating in Detroit, conducted from fall 2004 to spring 2005. first” strategy after 1996. Applicants to Temporary Assis- The second comprises state administrative and earnings tance for Needy Families (TANF) who did not already data on all participants who entered the program from meet mandatory work requirements were obliged to par- 1999 to 2003. The Work First data included demographic ticipate in welfare-to-work programs, called Work First information on Work First participants and detailed in- in Michigan, to help them find employment. Michigan formation on the jobs they found. The state Unemploy- required most TANF recipients to work 40 hours a week ment Insurance records enabled the researchers to track to remain eligible for assistance. the earnings and labor market histories of participants both during the program and earlier. In all, they examined In Michigan, the state Department of Human Services some 36,000 Work First spells of activity.7 Their data determined welfare eligibility and TANF benefits, but covered 9 geographic districts in which 25 contractors local agencies administered welfare-to-work programs. operated programs. Autor and Houseman studied the Work First program operating in Detroit, which was divided into geographic The Work First participants in the sample were predomi- districts; within each geographic district, one to three nantly female (94 percent) and black (97 percent). Their nonprofit private or public agencies contracted to provide average age was 30, and over a third had not completed employment services. When multiple contractors pro- high school. Slightly under half of the women found jobs vided Work First services within a district, they took while in Work First. Among participants who found jobs, turns enrolling applicants. In these districts the distribu- about 20 percent held jobs through temporary help agen- tion of participants among contractors was thus equiva- cies while the remaining 80 percent obtained direct-hire lent to random assignment.5 At the time this study was jobs. Relative to those who obtained temporary help or undertaken, Work First participants were required to treat direct hire-jobs, those who did not obtain any job were the program as if it were a job and to spend 40 hours a more likely to have dropped out of high school, had 2 Never Sporadically Every Few Months Monthly Weekly 0% 5% 10% 15% 20% 25% 30% 35% 40% Percentage of Contractors Reporting Invite temp agencies on site Refer participants to temp agency jobs Figure 1. Contractors’ contacts with temporary work agencies. worked fewer quarters before entering the program, and ence of the contractors on whether or not clients obtain had lower prior earnings. temporary help jobs (even allowing for some inflation in their reporting). The variability in contacts and placement reflects large dif- Contractors and temporary employment ferences among contractors’ views of the value of temporary agencies: Findings from the survey agency placement. Of the 21 contractors, 13 claimed to take a neutral stance on the issue, five discouraged temp jobs, and In the telephone survey, Autor and Houseman inter- three reported that they encouraged such jobs. Over three- viewed the heads of 21 contractor organizations that had quarters of contractors thought that direct-hire jobs lasted operated programs when participants in the study were longer and were more stable, and more than half thought enrolled in Work First.
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